Space development investment ( StarBound)

>3. "Due Diligence" technical reviews [technical committees]
>One area all new companies get hit with is the legal requirement that
>someone else reviews their technical ideas.

I've been pretty quiet on this list -- but maybe I should chime in
here. I work in the business and financial side of the space
business, including writing and analyzing business plans, and
including performing due diligence and preliminary assessments for
significant space investments.

>In the current world, this often comes down to a NASA person looking at
>their plans. There are many cases where plans for doing something cheaper
>than standard NASA practice has been shot down by someone from NASA. When
>NASA assumes you need a 300-person program office to manage a small
>satellite project, they can "fail" any other approach.

Hmmm.. I would rather disagree with this. There are a number of
reasons why you do due diligence, besides technical. A good due
diligence includes technical assessments (including cost, schedule
technical performance and technical risk -- not just technical
feasibility), but also includes financial, market, legal and human
resources examinations. When there are millions or billions on the
line, investors require you get good, competent folks to do due
diligence.

Is this "often a NASA person"? No -- in virtually all cases you
don't want NASA people involved. First, there are legal reasons you
don't want an active NASA person doing a legal opinion on a business
deal -- that's due to liability and conflict of interest. Secondly,
if you're looking at a commercial business proposition, NASA is *not*
in the commercial space business -- so why have them involved?

There are a lot of good folks available for doing due diligence --
and depending upon the field you'll select different folks. Usually
these are consultants, but sometimes you get the folks who work the
space practice (or whatever suitable specialty) from an investment
banker or industrial firm. Many of these people have spent years in
the field, doing commercial space ventures and are amazing sources of
experience and expertise. But, NASA and the USAF have been a big
part of the space activities over the last 40 years, and highly
experienced people probably have worked for either the USAF or NASA
in the past. That's not a negative -- it means they understand the
pluses and minuses of doing it "the NASA way" versus "the commercial
way".

Will these folks look at only "the NASA way of doing business"? No,
absolutely not. With commercial backgrounds they have a very good
idea about what it takes to do a project on a commercial basis, and
would immediately sniff out something not right.

But let me also add, they will also sniff out where a proposed
venture is light on investment or development or high in risk.
They'll be very candid on where they think the project is high risk
for the money invested, or if there is substantial technical or
market risk in the venture -- and raise a red flag if someone is
claiming to do something way outside the bounds of past commercial
experience with little justification in their business plan. One of
the problems I've seen with a lot of startup commercial space
business plans (and I've NEVER worked for NASA as an employee) is
that many of them make very sporty claims about faster and cheaper
and higher performance and new markets -- with very little supporting
data.

Due diligence is just that -- you're trying to identify the risks and
risk mitigation in a proposed venture. If someone claims they can do
something for 1/10th the cost in 1/10th the time -- they'll have to
provide some basis for that claim, or I would not put my money into
it or recommend anyone else put substantial funds into it. Without
that justification, it's highly unlikely you will get investors to
put serious money into the venture. But -- with good justification
or a balanced risk approach, you can get substantial funding

Don't take the easy cop-out of blaming "NASA" for someone not getting
money. Look at the business case and ask yourself if you would
seriously mortgage your house to invest in this venture.

>If SSI, or someone else, can establish substantial industry review teams
>for space development, that would be a big step forward. (Carl Mullin
>mentioned this idea in his NEO Bank concept.) This will require some real
>effort - you cannot just declare yourself as providing this service. I do
>not know what is needed to satisfy the legal requirements here. Anyone want
> to look into this?

I'm not so sure what a "substantial industry review" team means. If
you're interested there are business folks at pretty much all the
primes (Boeing, Lockheed Martin, Orbital Sciences, etc.) and some
investment banks (Unterberg, Tobin; Merrill Lynch; Goldman, Sachs,
etc.) and folks like SpaceVest Venture Capital Fund which do this on
a regular basis. SFF also has had some VCs and the like look at
proposed ventures at their conferences. I know at least one major
big space company (with both commercial and government businesses)
has put together a team to look at many startup space ventures, and
has invested in several of them. Again, it's not only technical
feasibility -- it's putting together a good market, technical,
financial and etc business case.

>Ideally, you want to create a group you would trust so much that even if
>you did not see some business plan yourself, you would bet your savings on
>this group's recommendation. :-)

Yep. But you'll do your own financial models and assessments -- but
you'll rely heavily upon the hired guns you've brought in for due
diligence to flag areas of key importance.

>Besides some group of experts, I think there needs to be some guidance on
>what are the 'figures of merit' for different kinds of space projects. For
>example, there are fragments of technical material scattered around about
>lunar, and asteroid resources. There are papers about delta-v's and mass
>payback ratios. But from a business sense, is the mass payback ratio for
>asteroid processing the important parameter? If we agreed on the important
>parameters, then we might work on the component parts of the system with a
>better understanding of shared goals. We always seem to need review papers
>to put the current situation in context. (This is a role Gerry O'Neill was
>great at, and we miss him.)

No -- the key metrics you'll need to satisfy are IRR (Internal Rate
of Return) and NPV (net present value) to the investors. A good
introductory business finance book will cover these if you're not
familiar with them.

An investor doesn't care about mass paybacks or delta vee or any of
that -- any or than he cares about lift/drag on a commercial aircraft
or vapor deposition or ion beam implantation on a new computer chip.
You need to talk to him in his language -- how much money do you need
and when? Who will be your customers? What are the risks in this
and what are you doing about this? How much will your customers pay?
Who are your competitors? When do I get my money back and my
profits? What milestones are you committing to so I know you're on
track?

>We also need to clarify, for the external business investor, what the
>specific technical risks are for each kind of enterprise. And then we need
>to examine how to reduce these specific risks. It will be the level of risk
>derived for the commercial enterprises that determine the required internal
>rates of return needed to attract investment. With the extreme levels of
>risks currently assumed, the IRRs demanded are also extreme.

At the bottom line -- space investments have to be competitive with
other investments. An investor will judge his risk & reward for a
space venture against other terrestrial ventures and only if the
space venture has a higher reward for the risk profile will they
invest in the space venture. Technical risk are one area -- and we
seem to focus upon technical factors in the space enthusiast
community. To close off this long note -- here is what I usually
look for in risk

Technical Risk
Cost -- how much is needed for this? How certain are these costs?
Schedule -- How long will it take before profits are made in this
venture? What are the things that drive this schedule to this
period?
Technical Performance -- How do I know this product will perform
as advertised?
Technical Risk -- What happens if it is over cost, late, and
doesn't work as advertised initially? Are their backup plans or
alternatives? Can I accept any single technical failure and continue
to operate and make my returns?

Market Risk
Who are the customers for this? How do I know they will buy
this? How am they signing them up and binding them to the venture?
Who are my competitors? What are they doing?
What are my additional markets for this? Can I sell this product
for other uses?

Regulatory/ Legal Risk
What are the regulations covering this activity?
What is the tax law covering this?
What is my liability in this? How do I avoid unlimited
liability?

Organizational
Who are the people to perform this venture? What is their
pertinent experience? How are they bound to the venture? How will
they grow?
What facilities, test equipment, hardware etc do they need and
how will they get it?
DO they have a complete business plan? Does it include
measurable milestones and progressive achievements? Do they know how
much money they need, how they will raise it, and how they will spend
it?
How much money do I need to put in, when do I need to put it in,
and when will I get my money back?
How do they make decisions as a business? How does the structure
of the organization change with time as the venture grows?
How are their suppliers and subcontractors bound to the success
of the venture? (and customers too...)